MIT economist Simon Johnson says Goldman Sachs could easily be blacklisted and banned in Europe for its role in helping Greece hide its debt.
Johnson expects a full audit of the company, and perhaps some kind of ban as well.
“If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license,” he says.
“But any meaningful action from this direction seems unlikely,” Johnson told CNBC.
Instead, Johnson says Goldman will probably be blacklisted from working with euro zone governments for the foreseeable future, as was Salomon Brothers 20 years ago.
“Goldman may be on its way to be banned from some government securities markets altogether,” Johnson notes.
“If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.”
A dispute is unfolding about how long European Union officials have known that Greece used derivatives to conceal its growing budget deficit, Bloomberg reports.
Greece turned to Goldman Sachs in 2002, just after adopting the euro, to get $1 billion in funding through a swap on $10 billion of debt, said Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time.
Sardelis also said that Eurostat, the EU’s statistics office, was aware of the plan.
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